Texas Teachers To Commit $2.5B To PE

The $82 billion Teacher Retirement System of Texas intends to commit roughly $2.5 billion to private equity in the coming year, and if past is prologue much of that will be channeled through funds of funds.

The limited partner has not yet finalized which sub-strategies it will target, but one recent pledge of $100 million went to fund-of-funds Morgan Creek Partners Asia LP, said spokesperson Howard Goldman. According to an SEC filing, that vehicle has gathered $100 million toward a $250 million target; the strategy is to back country-specific, growth-oriented managers throughout Asia. Morgan Creek Capital Management has already backed CX Partners, which plans to raise $750 million to invest in consumer-driven businesses in India.

In March, the LP unveiled pledges totaling $400 million to two captive accounts managed by Credit Suisse’s Customized Fund Investment Group. The pension fund pledged $300 million to the Credit Suisse CFIG Middle Market Buyout Program, a captive fund of funds designed to provide the pension fund with additional exposure to middle-market firms that cannot accept its normal pledge size of roughly $100 million and up. It also made a $100 million commitment to the Credit Suisse Re-Up Bridge Program to gain exposure to managers no longer deemed emerging.

In addition, Credit Suisse runs a $550 million emerging manager program for the pension fund. Emerging managers can include minority-, women- and disabled veteran-owned firms that manage less than $3 billion or have a track record as a firm of less than five years. The pension fund’s new investment policy recently increased the target allocation of the private equity emerging manager program to $800 million.

Texas Teachers commits to primary, secondary and co-investments; emerging managers; opportunistic investments, such as investments in the management entity of a private equity investment firm or sponsor; and public-to-private transactions. The pension fund expects its fund managers or sponsors to try to avoid investing in companies or enterprises that derive a large part of their revenues from products or services intended exclusively to “appeal to a prurient interest…,” according to the LP’s investment policy.

Texas Teachers’s target allocation to private equity is 10 percent, with a range of 5 percent to 15 percent. As of June 30, the actual private equity allocation stood at 6.6 percent.